Amos Tversky

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Amos Tversky
Amos Tversky.jpg
Born
Amos Nathan Tversky

(1937-03-16)March 16, 1937
DiedJune 2, 1996(1996-06-02) (aged 59)
Nationality Israeli
Alma mater University of Michigan
Hebrew University
Known for Prospect theory
Heuristics and biases
Spouse(s)
Barbara Tversky (m. 1963)
Awards MacArthur Award
Grawemeyer Award in Psychology (2003)
Scientific career
Fields Cognitive psychology, Behavioral economics
Institutions Hebrew University
Stanford University
Doctoral students Maya Bar-Hillel

Amos Nathan Tversky (Hebrew : עמוס טברסקי; March 16, 1937 – June 2, 1996) was a cognitive and mathematical psychologist, a student of cognitive science, a collaborator of Daniel Kahneman, and a figure in the discovery of systematic human cognitive bias and handling of risk.

Contents

Much of his early work concerned the foundations of measurement. He was co-author of a three-volume treatise, Foundations of Measurement (recently reprinted). His early work with Kahneman focused on the psychology of prediction and probability judgment; later they worked together to develop prospect theory, which aims to explain irrational human economic choices and is considered one of the seminal works of behavioral economics. Six years after Tversky's death, Kahneman received the 2002 Nobel Prize in Economics for the work he did in collaboration with Amos Tversky. [1] (The prize is not awarded posthumously.) Kahneman told The New York Times in an interview soon after receiving the honor: "I feel it is a joint prize. We were twinned for more than a decade." [2] Tversky also collaborated with many leading researchers including Thomas Gilovich, Itamar Simonson, Paul Slovic and Richard Thaler. A Review of General Psychology survey, published in 2002, ranked Tversky as the 93rd most cited psychologist of the 20th century, tied with Edwin Boring, John Dewey, and Wilhelm Wundt. [3]

Biography

Tversky was born in Haifa, British Palestine (now Israel), as son of the Polish-born veterinarian Yosef Tversky and Lithuanian Jewish Jenia Tversky (née Ginzburg), a social worker who later became member of parliament for the Mapai (worker's party). [4] Tversky had one sister, Ruth, thirteen years his senior. In high school, Tversky took classes from literary critic Baruch Kurzweil, and befriended classmate Dahlia Ravikovich, who would become an award-winning poet. During this time, he was also a member and leader in Nahal, a youth movement meant to combine farming and military service. [5]

Tversky served with distinction in the Israel Defense Forces as a paratrooper, rising to the rank of captain and being decorated for bravery. [4] He parachuted in combat zones during the Suez Crisis in 1956, commanded an infantry unit during the Six-Day War in 1967, and served in a psychology field unit during the Yom Kippur War in 1973. [5]

In 1963, Tversky married American psychologist Barbara Gans, now a professor in the human development department at Teachers College, Columbia University. [5] They had three children together.

Tversky received his bachelor's degree from Hebrew University of Jerusalem in Israel in 1961, and his doctorate from the University of Michigan in Ann Arbor in 1965. He later taught at Hebrew University before joining the faculty of Stanford University in 1978, where he spent the rest of his career. In 1980 he became a fellow of the American Academy of Arts and Sciences. [5] [6] In 1984 he was a recipient of the MacArthur Fellowship, and in 1985 he was elected to the National Academy of Sciences. [7] Tversky, co-recipient with Daniel Kahneman, earned the 2003 University of Louisville Grawemeyer Award for Psychology. [8] He died of a metastatic melanoma in 1996. [9] He was a Jewish atheist. [10]

Career

Work with Daniel Kahneman

Amos Tversky's most influential work was done with his longtime collaborator, Daniel Kahneman, in a partnership that began in the late 1960s. Their work explored the biases and failures in rationality continually exhibited in human decision-making. [5] Starting with their first paper together, "Belief in the Law of Small Numbers", Kahneman and Tversky laid out eleven "cognitive illusions" that affect human judgment, frequently using small-scale empirical experiments that demonstrate how subjects make irrational decisions under uncertain conditions. This work was highly influential in the field of economics, which had largely presumed rationality of all actors. [11]

Comparative ignorance

Tversky and Fox (1995) [12] addressed ambiguity aversion, the idea that people do not like ambiguous gambles or choices with ambiguity, with the comparative ignorance framework. Their idea was that people are only ambiguity averse when their attention is specifically brought to the ambiguity by comparing an ambiguous option to an unambiguous option. For instance, people are willing to bet more on choosing a correct colored ball from an urn containing equal proportions of black and red balls than an urn with unknown proportions of balls when evaluating both of these urns at the same time. However, when evaluating them separately, people are willing to bet approximately the same amount on either urn. Thus, when it is possible to compare the ambiguous gamble to an unambiguous gamble people are averse — but not when one is ignorant of this comparison.

Notable contributions

The shape of the value (utility) function in prospect theory. The asymmetry of the function corresponds to loss aversion. Value function in Prospect Theory Graph.jpg
The shape of the value (utility) function in prospect theory. The asymmetry of the function corresponds to loss aversion.

Tversky intelligence test

As recounted by Malcolm Gladwell in 2013's David and Goliath: Underdogs, Misfits, and the Art of Battling Giants , Tversky's peers thought so highly of him that they devised a tongue-in-cheek one-part test for measuring intelligence. As related to Gladwell by psychologist Adam Alter, the Tversky intelligence test was "The faster you realized Tversky was smarter than you, the smarter you were." [13]

The Undoing Project

Michael Lewis's book The Undoing Project: A Friendship That Changed Our Minds , released on December 16, 2016, is about Amos Tversky and Daniel Kahneman, and is the "story of their lives and work together". [14]

Related Research Articles

A cognitive bias is a systematic pattern of deviation from norm or rationality in judgment. Individuals create their own "subjective reality" from their perception of the input. An individual's construction of reality, not the objective input, may dictate their behavior in the world. Thus, cognitive biases may sometimes lead to perceptual distortion, inaccurate judgment, illogical interpretation, or what is broadly called irrationality.

A heuristic technique, or a heuristic, is any approach to problem solving or self-discovery that employs a practical method that is not guaranteed to be optimal, perfect or rational, but which is nevertheless sufficient for reaching an immediate, short-term goal. Where finding an optimal solution is impossible or impractical, heuristic methods can be used to speed up the process of finding a satisfactory solution. Heuristics can be mental shortcuts that ease the cognitive load of making a decision. Examples that employ heuristics include using trial and error, a rule of thumb or an educated guess.

Daniel Kahneman Israeli-American psychologist

Daniel Kahneman is an Israeli-American psychologist and economist notable for his work on the psychology of judgment and decision-making, as well as behavioral economics, for which he was awarded the 2002 Nobel Memorial Prize in Economic Sciences. His empirical findings challenge the assumption of human rationality prevailing in modern economic theory.

Behavioral economics academic discipline

Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals and institutions and how those decisions vary from those implied by classical economic theory.

Prospect theory theory in behavioural economics

The prospect theory is an economics theory developed by Daniel Kahneman and Amos Tversky in 1979. It challenges the expected utility theory, developed by John von Neumann and Oskar Morgenstern in 1944, and earned Daniel Kahneman the Nobel Memorial Prize in Economics in 2002. It is the founding theory of behavioral economics and of behavioral finance, and constitutes one of the first economic theories built using experimental methods.

In economics, game theory, and decision theory, the expected utility hypothesis—concerning people's preferences with regard to choices that have uncertain outcomes (gambles)⁠—states that the subjective value associated with an individual's gamble is the statistical expectation of that individual's valuations of the outcomes of that gamble, where these valuations may differ from the dollar value of those outcomes. The introduction of St. Petersburg Paradox by Daniel Bernoulli in 1738 is considered the beginnings of the hypothesis. This hypothesis has proven useful to explain some popular choices that seem to contradict the expected value criterion, such as occur in the contexts of gambling and insurance.

Simulation heuristic

The simulation heuristic is a psychological heuristic, or simplified mental strategy, according to which people determine the likelihood of an event based on how easy it is to picture the event mentally. Partially as a result, people experience more regret over outcomes that are easier to imagine, such as "near misses". The simulation heuristic was first theorized by psychologists Daniel Kahneman and Amos Tversky as a specialized adaptation of the availability heuristic to explain counterfactual thinking and regret. However, it is not the same as the availability heuristic. Specifically the simulation heuristic is defined as "how perceivers tend to substitute normal antecedent events for exceptional ones in psychologically 'undoing' this specific outcome."

In prospect theory, the pseudocertainty effect is the tendency for people to perceive an outcome as certain while it is actually uncertain in multi-stage decision making. The evaluation of the certainty of the outcome in a previous stage of decisions is disregarded when selecting an option in subsequent stages. Not to be confused with certainty effect, the pseudocertainty effect was discovered from an attempt at providing a normative use of decision theory for the certainty effect by relaxing the cancellation rule.

The Ellsberg paradox is a paradox in decision theory in which people's choices violate the postulates of subjective expected utility. It is generally taken to be evidence for ambiguity aversion. The paradox was popularized by Daniel Ellsberg, although a version of it was noted considerably earlier by John Maynard Keynes.

The disposition effect is an anomaly discovered in behavioral finance. It relates to the tendency of investors to sell assets that have increased in value, while keeping assets that have dropped in value.

Cumulative prospect theory concept in behavioral economics

Cumulative prospect theory (CPT) is a model for descriptive decisions under risk and uncertainty which was introduced by Amos Tversky and Daniel Kahneman in 1992. It is a further development and variant of prospect theory. The difference between this version and the original version of prospect theory is that weighting is applied to the cumulative probability distribution function, as in rank-dependent expected utility theory but not applied to the probabilities of individual outcomes. In 2002, Daniel Kahneman received the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel for his contributions to behavioral economics, in particular the development of Cumulative Prospect Theory (CPT).

The rank-dependent expected utility model is a generalized expected utility model of choice under uncertainty, designed to explain the behaviour observed in the Allais paradox, as well as for the observation that many people both purchase lottery tickets and insure against losses.

In psychology, the human mind is considered to be a cognitive miser due to the tendency of people to think and solve problems in simpler and less effortful ways rather than in more sophisticated and more effortful ways, regardless of intelligence. Just as a miser seeks to avoid spending money, the human mind often seeks to avoid spending cognitive effort. The cognitive miser theory is an umbrella theory of cognition that brings together previous research on heuristics and attributional biases to explain how and why people are cognitive misers.

Hersh Shefrin is a Canadian economist best known for his pioneering work in behavioral finance.

Heuristics are simple strategies or mental processes that humans, animals, organizations and machines use to quickly form judgments, make decisions, and find solutions to complex problems. This happens when an individual focuses on the most relevant aspects of a problem or situation to formulate a solution.

The certainty effect is the psychological effect resulting from the reduction of probability from certainty to probable. It is an idea introduced in prospect theory.

<i>Thinking, Fast and Slow</i> 2011 book by Daniel Kahneman

Thinking, Fast and Slow is a best-selling book published in 2011 by Nobel Memorial Prize in Economic Sciences laureate Daniel Kahneman. It was the 2012 winner of the National Academies Communication Award for best creative work that helps the public understanding of topics in behavioral science, engineering and medicine.

The end-of-the-day betting effect is a cognitive bias reflected in the tendency for bettors to take gambles with higher risk and higher reward at the end of their betting session to try to make up for losses. William McGlothlin (1956) and Mukhtar Ali (1977) first discovered this effect after observing the shift in betting patterns at horserace tracks. Mcglothlin and Ali noticed that people are significantly more likely to prefer longshots to conservative bets on the last race of the day. They found that the movement towards longshots, and away from favorites, is so pronounced that some studies show that conservatively betting on the favorite to show in the last race is a profitable bet despite the track’s take.

<i>The Undoing Project</i> 2016 book by Michael Lewis

The Undoing Project: A Friendship That Changed Our Minds is a 2016 nonfiction book by American author Michael Lewis, published by W.W. Norton. The Undoing Project explores the close partnership of Israeli psychologists Daniel Kahneman and Amos Tversky, whose work on heuristics in judgment and decision-making demonstrated common errors of the human psyche, and how that partnership eventually broke apart. The book revisits Lewis' interest in market inefficiencies, previously explored in his books Moneyball (2003), The Big Short (2010), and Flash Boys (2014). It was acclaimed by book critics.

David Gal is Professor of Marketing at the University of Illinois at Chicago. He is best known for his critiques of behavioral economics, and in particular his critique of the behavioral economics concept of loss aversion. His forthcoming book is titled The Power of the Status Quo.

References

  1. Altman, Daniel (10 October 2002). "A Nobel That Bridges Economics and Psychology". The New York Times. Retrieved 14 March 2009.
  2. Goode, Erica (5 November 2002). "A Conversation with Daniel Kahneman; On Profit, Loss and the Mysteries of the Mind". The New York Times. Retrieved 14 March 2009.
  3. Haggbloom, Steven J.; Warnick, Renee; Warnick, Jason E.; Jones, Vinessa K.; Yarbrough, Gary L.; Russell, Tenea M.; Borecky, Chris M.; McGahhey, Reagan; et al. (2002). "The 100 most eminent psychologists of the 20th century". Review of General Psychology. 6 (2): 139–152. doi:10.1037/1089-2680.6.2.139.
  4. 1 2 A Psychologist Who Shed Light on Our Irrationality Is Born Haaretz, 16 March 2016
  5. 1 2 3 4 5 Lewis, Michael (2017). The Undoing Project. New York: W. W. Norton & Company. ISBN   978-0-393-35610-6.
  6. http://www.amacad.org/publications/BookofMembers/ChapterT.pdf
  7. "National Academy of Sciences".
  8. "2002- Daniel Kahneman and Amos Tversky". Archived from the original on 2015-07-23.
  9. Freeman, Karen (6 June 1996). "Amos Tversky, Expert on Decision Making, Is Dead at 59". The New York Times. Retrieved 14 March 2009.
  10. Engber, Daniel. “How a Pioneer in the Science of Mistakes Ended Up Mistaken.” Slate Magazine, 21 December 2016. "It’s a portrait of besotted opposites: Both Kahneman and Tversky were brilliant scientists, and atheist Israeli Jews...
  11. "Amos Tversky, leading decision researcher, dies at 59". Stanford University News Service. 1996-06-05. Retrieved 2017-12-25.
  12. Fox, Craig R.; Amos Tversky (1995). "Ambiguity Aversion and Comparative Ignorance". Quarterly Journal of Economics. 110 (3): 585–603. CiteSeerX   10.1.1.395.8835 . doi:10.2307/2946693. JSTOR   2946693.
  13. Malcolm Gladwell, David and Goliath: Underdogs, Misfits, and the Art of Battling Giants, 2013, page 103
  14. Engber, Daniel (21 December 2016). "The Irony Effect". Slate. Retrieved 26 January 2017.